Raise It or Waive It: Recognition of the Applicability of the CISG and the Need to Raise it Early

A choice-of-law provision in a contract for the sale of goods should be the final word on what law applies, correct? Not necessarily. If the merchants are from different countries, then an often-overlooked international treaty called the United Nations Convention on Contracts for the International Sale of Goods (“CISG”) might apply instead, despite the contract’s plain language.[1] Applying the CISG could change the outcome of a case as the CISG has fundamental differences from the Uniform Commercial Code (“UCC”), the law typically applied in transactions governing the sale of goods in most U.S. jurisdictions.[2] However, if neither party timely raises the applicability of the CISG, then U.S. courts will likely consider the issue waived, and instead enforce the contract’s choice-of-law provision. Given the CISG is often the applicable law in contracts involving the international sale of goods, it is critical that litigation attorneys raise the CISG as the law governing the contract early in litigation if advantageous to the client’s position. Transactional attorneys should also be aware of when the CISG governs the contract and whether to bargain for an opt-out clause to prevent its enforcement.

The CISG is an international treaty regulating contracts for the international sale of goods where (1) the parties are merchants, (2) the parties’ places of business are in different countries, and (3) both countries are signatories to the CISG.[3] The CISG has several fundamental differences from the UCC and common law (U.S. domestic law) that could affect dispute outcomes, including: (1) while U.S. domestic law requires certain types of agreements be in writing under the Statute of Frauds, no such requirement exists under the CISG, and (2) the CISG permits more evidence outside of a written agreement to interpret a contract than would be allowed under U.S. domestic law’s parol evidence rule.[4]

However, whenever the CISG would otherwise apply, Article 6 of the CISG (“Article 6”) states that “parties [subject to the CISG] may exclude its application.”[5] U.S. caselaw has generally interpreted Article 6 to mean that parties subject to the CISG can waive by evoking a “clear intent to opt out of the CISG.”[6] The Northern District of California’s influential decision in Asante Techs. v. PMC-Sierra is representative of how to correctly analyze the applicability of the CISG.[7]

In Asante, the contract in dispute was between two merchants with places of business in different signatory countries: Canada and the U.S.[8] Although the contract contained no explicit exclusion of the CISG, the choice-of-law provision designated the law of the State of California.[9] The court held that since the CISG is a federal treaty, it preempts conflicting state law under the Supremacy Clause of the U.S. Constitution.[10]  Therefore, the CISG is the law of California and governs whenever the CISG applies and is not waived by the parties.[11]

While the applicability of the CISG was timely raised in Asante, the question becomes whether the courts will consider the CISG waived if untimely raised, i.e., first raising the CISG on appeal or late into litigation. The CISG Advisory Council Opinion (“Opinion”) recommends that in cases where appellate courts have discretion regarding new issues being raised, it is the courts’ duty to apply the CISG or to remit matters to the trial court for determination under the CISG, where applicable.[12] Moreover, the Opinion recommends that failing to raise the CISG during trial court proceedings should not infer an intent to exclude.[13] However, unlike the CISG itself, the Opinion has no binding authority on U.S. law.[14]

Since the CISG is a federal treaty, asserting its applicability is essentially a federal preemption defense.[15] The Supreme Court has held that unless a federal preemption defense implicates a court’s power to hear a case, it can be waived.[16] Since neither the CISG nor any related statute awards the federal courts exclusive jurisdiction over enforcement, the CISG is likely to be seen as a waivable federal preemption defense. Moreover, most U.S. federal courts consider a federal preemption defense waived if not raised at the trial court.[17]

The Supreme Court has emphasized that waiver rules are essential to the orderliness of the litigation process.[18] By enforcing waiver rules, courts narrow down what is left to be decided.[19] Additionally, the Court has held that first raising issues on appeal is unfair to litigants who will be surprised about issues they had no opportunity to address earlier.[20]

Applying these principles in the CISG context, the Second Circuit Court of Appeals affirmed the district court’s order that a litigant waived the CISG by not raising it until three years into litigation.[21] Oregon and Washington state courts have also rejected applying the CISG when untimely raised.[22]

While no federal or state courts have specifically permitted untimely raising of the CISG, there is an argument under federal law for doing so. In Singleton v. Wulff, the U.S. Supreme Court held that appellate courts have discretion to consider an issue first raised at appeal.[23] While the Court announced no general rule, it cited two general situations where appellate courts were “certainly” justified in raising issues for the first time on appeal: “where the proper resolution is beyond any doubt or where injustice might otherwise result.”[24]

In United States v. Krynicki, the First Circuit applied Singleton’s holding and considered four factors to determine whether issues can be first raised on appeal.[25]  The first factor is whether the issue is purely legal.[26] A purely legal issue can be decided without any need to develop the record further.[27] This factor assures there can be no complaint that the appellate court deprived the other party of introducing relevant evidence.[28] The second factor is whether the party raising the issue leaves no doubt as to the proper resolution of the issue.[29] The third factor is whether the issue is almost certain to arise in other cases.[30] The fourth and most important factor is whether declining to take on the issue “would result in a miscarriage of justice.”[31]

A court applying the Krynicki factors could permit first raising of the CISG at appeal. First, the issue of the application of the CISG is typically a pure legal issue, unlikely to require further development of the record. To adjudicate a dispute under the CISG, the record should be fully developed as to the location of the place of business of the parties, whether those places are in different countries, whether both those countries are signatories to the CISG, and whether the contract explicitly excluded the CISG. If all these facts have been submitted to the trial court record, the application of the CISG is arguably a purely legal question which can be adjudicated without a need to develop the record any further. Second, the applicability of the CISG, as described above, is a straightforward analysis that typically leaves no doubt as to proper resolution of the issue. Third, in the globalized market, the issue of the applicability of the CISG is almost certain to arise. Lastly, the Krynicki court found that reinstating a criminal charge was a sufficient public interest to avoid a “miscarriage of justice.”[32] A court could similarly conclude that reliability and application of the proper law in support of efficient international trade avoids a “miscarriage of justice” in a significant public interest. Therefore, a Krynicki analysis could permit untimely raising of the CISG.

As for state courts, California has held that preemption may be raised for the first time on appeal for “questions of law regarding matters of public concern” with undisputed facts.[33] The applicability of the CISG is typically a pure question of law, often based on undisputed facts, and goes to the reliance and efficiency of international trade contracts which is of public concern.

New York state courts similarly may permit first raising an issue on appeal “in the interest of justice.”[34] The more common scenario in which New York appellate courts may consider an argument first raised on appeal is where the issue involved “a question of law apparent on the face of the record, which could not have been avoided if raised at the proper juncture.”[35] New York courts want to see that the issue is determinative, fully supported by the existing record, and the outcome could not have been avoided if raised below.[36] Like California, the CISG can arguably be first raised on appeal in New York if the record is fully developed as to its applicability and application of the CISG will be determinative of the dispute. However, like California, no New York cases in relation to untimely raising of the CISG have been adjudicated.

U.S. jurisdictions have not yet applied the legal principles that would possibly permit an untimely raising of the CISG. Instead, as discussed earlier, jurisdictions have rejected untimely raising of the CISG as a waived, choice-of-law federal preemption defense.[37]

Despite the CISG Advisory Council’s Opinion that untimely raising of the CISG should not constitute waiver, federal and state courts taking up the issue to date have not agreed. Although an argument can be made to permit untimely raising of the CISG, discretion is given to the federal courts of appeal which have thus far declined to permit it. While California and New York courts apply more flexible standards to issues first raised on appeal, there do not appear to be any examples of the application of these principles in a CISG context. Attorneys litigating matters involving the international sale of goods should screen for the applicability of the CISG and make a timely raising where it proves advantageous to their clients’ interests. Otherwise, the CISG will likely be considered waived.

[1] See Paul Humbert, Common Law vs UCC vs CISG Contracts, LinkedIn (July 7, 2017), www.linkedin.com/pulse/common-law-vs-ucc-cisg-contracts-paul-humbert/ [perma.cc/X9NJ-95UJ].

[2] See id.

[3] United Nations Convention on Contracts for the International Sale of Goods art. 1, Aug. 31, 1981, S. Treaty Doc. No. 98-9 (1983), 1489 U.N.T.S. 3.

[4] Karen Halverson Cross, Parol Evidence Under the CISG: The “Homeward Trend” Reconsidered, 68 Ohio State L. J. 133, 145-47 (2007).

[5] Id. at art. 6.

[6] Asante Techs. v. PMC-Sierra, 164 F. Supp. 2d 1142, 1150 (N.D. Cal. 2001); see CISG-AC Opinion No. 16, 4.2 Exclusion of the CISG under Article 6, Rapporteur: Doctor Lisa Spagnolo, Monash University, Australia. Adopted by the CISG Advisory Council following its 19th meeting, in Pretoria, South Africa on 30 May 2014 (noting that Asante’s holding is what is generally accepted by worldwide and U.S. courts).

[7] CISG-AC Opinion No. 16, 4.2, supra note 6.

[8] Asante, 164 F. Supp. 2d at 1149.

[9] Id. at 1150.

[10] Id.

[11] Id.

[12] CISG-AC Opinion No. 16 at 5.8.

[13] Id. at 5.13.

[14] See Joshua D.H. Karton & Lorraine de Germiny, Has the CISG Council Come of Age, 27 Berkeley J. Int’l L. 448, 473 (2009) (discussing the lack of binding authority the CISG Advisory Council Opinions have on nations, while acknowledging that they are persuasive).

[15] See Colorado Tire Corp. v. Moraglis S.A., No. 82633-6-I, 2022 Wash. App. LEXIS 1548, at *15 (Wash. Ct. App. Aug. 1, 2022) (finding the invocation of the CISG constituted a federal preemption defense).

[16] See Int’l Longshoremen’s Ass’n v. Davis, 476 U.S. 380, 390-91 (1986) (holding that raising the federal National Labor Relations Act as the applicable law post-verdict was not waivable because the Act awarded exclusive jurisdiction of its enforcement to the federal courts and therefore implicated the state court’s jurisdiction).

[17] See, e.g., Wolf v. Reliance Std. Life Ins. Co., 71 F.3d 444, 449 (1st Cir. 1995) (holding that raising federal employee benefits law was waivable because it only concerned choice of substantive law, not the court’s subject matter jurisdiction); Brannan v. United Student Aid Funds, Inc., 94 F.3d 1260, 1266 (9th Cir. 1996) (holding that choice-of-law federal preemption defense was waived since it was not raised at trial court); Violette v. Smith & Nephew Dyonics, Inc., 62 F.3d 8, 11-12 (1st Cir. 1995) (holding that federal preemption not presented to trial court may not be raised on appeal for the first time);  Sweeney v. Westvaco Co., 926 F.2d 29, 37-41 (1st Cir. 1991) (holding that raising federal preemption after jury verdict constituted waiver);  Dueringer v. General Amer. Life Ins. Co., 842 F.2d 127, 130 (5th Cir. 1988) (holding that federal preemption is a choice of law question that must be timely raised as an affirmative defense); Johnson v. Armored Transp. of Cal., Inc., 813 F.2d 1041, 1043-44 (9th Cir. 1987) (holding that federal preemption defense was waived because it only affected choice of law, not choice of forum); Gilchrist v. Jim Slemons Imports, Inc., 803 F.2d 1488, 1497 (9th Cir. 1986) (holding that federal preemption defense not implicating the choice of forum was waived).

[18] Exxon Shipping Co. v. Baker, 554 U.S. 471, 487 n.6 (2008).

[19] Id.

[20] Hormel v. Helvering, 312 U.S. 552, 556 (1941).

[21] See Rienzi & Sons, Inc. v. N. Puglisi & F. Industria Paste Alimentari S.p.A., 638 F. App'x 87, 90 (2d Cir. 2016) (affirming the district court’s finding that untimely invocation of the CISG three years into litigation constituted implied consent of the application of state law instead).

[22] See e.g., GPL Treatment v. Louisiana Pacific Corp., 894 P.2d 470, 477 n.4 (Leeson, J., dissenting) (noting that the trial court refused to apply the CISG because it was untimely raised); Colorado Tire Corp. v. Moraglis S.A., No. 82633-6-I, 2022 Wash. App. LEXIS 1548, at *15-16 (Wash. Ct. App. Aug. 1, 2022) (holding that raising the CISG for the first time on appeal constituted waiver).

[23] Singleton v. Wulff, 428 U.S. 106, 121 (1976).

[24] Id. (quoting Hormel v. Helvering, 312 U.S. 552, 557 (1941)).

[25] United States v. Krynicki, 689 F.2d 289, 291-92 (1st Cir. 1982).

[26] Id.

[27] Id.

[28] Id.

[29] Id.

[30] Id.

[31] Id.

[32] Id.

[33] Readylink Healthcare Inc. v. Jones, 148 Cal. Rptr. 3d 881, 888 (Cal. Ct. App. 2012) (quoting Rental Housing Ass’n of Northern Alameda County v. City of Oakland, 90 Cal. Rptr. 3d 181, 192 (Cal Ct. App. 2009) (allowing analysis of untimely raising of choice of law preemption because it dealt with tenancy issues which was a matter of public concern)).

[34] Merrill v. Albany Med. Cntr. Hosp., 524 N.E.2d 873, 873 (N.Y. 1988).

[35] Adrienne B. Koch, Walking the Line: When New Arguments Can Be Raised on Appeal, N.Y.L.J. (Aug. 21, 2020 3:05 PM), www.law.com/newyorklawjournal/2020/08/21/walking-the-line-when-new-arguments-can-be-raised-on-appeal/ [perma.cc/ X4FK-8ETF] (quoting 41 Clinton Avenue Corp. v. Silver, 52 N.Y.S.3d 650, 651 (N.Y. App. Div. 2017) (allowing first raising on appeal a defense of a signed release because the release was in the record and contained language that directly addressed the dispute)).

[36] Koch, supra note 35 (citing Watson v. City of New York, 69 N.Y.S.3d 294, 296 (N.Y. App. Div. 2018) (allowing first raising on appeal that an answer was timely made because no new facts were alleged and the issue was apparent on the face of the record), and Ramirez v. Almah, LLC, 94 N.Y.S.3d 38, 40 (N.Y. App. Div. 2019) (refusing to permit the validity of an indemnification agreement being first raised on appeal because the argument depended on facts not in the record)).

[37] See Rienzi, 638 F. App’x at 90; GPL Treatment, 894 P.2d at 477 n.4; Colorado Tire Corp., No. 82633-6-I, 2022 Wash. App. LEXIS at *15.